Expert Financial Analysis and Reporting

Overview

In a report published on April 14^th I recommended purchasing Chimerix at a price of $5.67. The catalyst for my recommendation was the pending release of data from the AdVise trial of brincidofovir in life threatening adenoviral infections in children and adults. I estimate that the US addressable market for this indication as perhaps $150 million or more and because of the life threatening nature of the disease and lack of any approved therapy, I expected the penetration of the market to be rapid if the trial was successful. Sales might ramp very quickly to $50 to $100 million.

AdVise was designed as an open label trial with no comparator arm. Based on conversations with the FDA, the Company felt that the life threatening nature of adenoviral infections would make enrolling a control arm difficult and possibly unethical. They also thought that data from the SUPPRESS trial would provide supportive data. In order to gauge the effectiveness of brincidofovir against a heterogeneous mixture of treatments used in these infections (there is no approved drug treatment), Chimerix decided to do a retrospective study (study 305) to determine what survival rates had been in comparable patients in past years. This involved looking at past patient treatment outcomes and trying to find patients with characteristics similar to match to those in the AdVise trial. The overall survival in this group could then be compared to survival in the AdVise arm.

In December 2015, Chimerix had provided an update on Cohort B. At day 90, the all-cause mortality was less than 40% for the approximately 100 stem cell transplant recipients with disseminated adenovirus infection. This compared to results reported in the literature which suggested that mortality in these patients ranged from 50% to 80%. In addition, a compassionate use program for brincidofovir resulted in numerous requests for use on a compassionate use basis. In January 2016 alone, there were 100 such requests. This suggested that there was favorable word of mouth about the benefit of brincidofovir. This led me to believe that brincidofovir was providing benefit, but there was no reliable way to judge what expected survival might be for patients not treated with brincidofovir.

New Data from AdVise

Chimerix just reported more recent interim data in about 100 patients from AdVise which showed that pediatric patients (two thirds of the total) had 32% all-cause mortality at 90 days and 42% at week 24. The adult patients (one third) had 57% all-cause mortality at day 90 and 71% at week 24. The results in the pediatric patients looked to be extremely encouraging if indeed all-cause mortality were 50% to 80% as Chimerix had estimated based on the literature. The company believes that the adult population is quite different from pediatric and focused only on pediatric results.

All cause mortality results in the pediatric group of the AdVise trial were encouraging and perhaps better than expected. However, Chimerix reported results for the matched control group in the 305 study were uninterpretable for a number reasons. After discussions with the FDA, Chimerix has now indicated that it believes that it will have to do a new controlled and randomized study. This is a disappointment. If study 305 had showed all-cause mortality of say 50% to 80%, I believe that there was a good chance that brincidofovir could have been approved in early 2017. The Company will now have to design and run a new trial and if that trial is positive, approval might come in 2019.

Change in Investment Thesis

This disappointing development takes away an essential leg of my investment thesis. I thought that the quick approval of brincidofovir following AdVise would boost the stock (possibly double the current price) and provide significant revenues and profitability. Investors could then view the extensive development planned for cytomegalovirus and other viral infections as a powerful added element of the story even though topline results are unlikely until 2020. Adding to the investment allure is a very strong cash position of $314 million which is about $6.79 per share. The Company is unlikely to need financing for the next two to three years to conduct potential upcoming trials. Also, brincidofovir has a long patent life stretching to 2032 so there is plenty of time to commercialize the product even if approvals are obtained in 2020 or beyond.

The disappointment on AdVise necessitates changing my investment recommendation. Data from AdVise in a new trials is now unlikely until 2019 or 2020. It is likely the case that investors holding the stock may not have any significant clinical news on pivotal trials for two or three years or more. I would sell the stock and move on. I don’t see dramatic downside in the stock, just boredom, because of the cash position. The long period without news flow suggests to me that it will be hard to see much investor enthusiasm for the stock.

BARDA Decision on Stockpiling Brincidofovir for Smallpox

There does remain a potential catalyst for the stock and that is a BARDA decision on whether to stockpile brincidofovir for the treatment of smallpox if an outbreak were to occur as a result of either a terrorist attack or a laboratory mishap. This could result in sales of $100 to $440 million over a four year period. I don’t have a firm view on the possibility of this occurring. However, BARDA’s budget is strained and spending of the Zika virus is taking precedence. This could delay action on brincidofovir stockpiling for smallpox. The Company had originally had thought there could be a decision form BARDA in late 2016, but there is likely to be a substantial delay into 2017.